Purchase Solution

# EPS, PE, and Mergers

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The shareholders of Flannery Company have voted in favor of a buyout offer from Stultz Corporation. Information about each firm is given here:
Flannery Stultz
Price-earnings ratio 5.60 16.80
Shares outstanding 59,000 177,000
Earnings \$225,000 \$900,000
Flannery's shareholders will receive one share of Stultz stock for every four shares they hold in Flannery.

Question 1:
(a) What will the EPS of Stultz be after the merger? Round your answer to 2 decimal places. (e.g., 32.16)
EPS: \$__________
(b) What will the PE ratio be if the NPV of the acquisition is zero?(Round your answer to 2 decimal places. (e.g., 32.16)
PE ratio: ______

Question 2:
What is the value of Flannery to Stulz?
Value of Flannery to Stulz: \$___________

##### Solution Summary

Provides steps necessary to determine value of EPS, PE and Mergers.

##### Solution Preview

(a) Total Earnings after the merger = \$225000+\$900000=\$1125000
Outstanding shares = shares issued to Flannery shareholders + outstanding shares of Stultz before the merger
=59000/4+177000=191750

EPS = Total earnings / total ...

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